JK Cement – Q3FY13 Result Analysis.

Rajasthan -based cement maker JK Cement announced its Q3FY13 result on 4th February 2013. The net sales of the company have increased significantly by 11% on YoY to Rs 688 crore.

Company is one of the leading cement manufacturers in the north India (7% market share) and a new entrant for grey cement in South India (3% market share). It is one of those companies in the country enjoying 40% white cement market share.

As regards the detailed analysis, on the operating side, JK Cement has shown significant improvement in the December 2012 quarter. The operating profit of the company has increased by 10 per cent on a YoY basis which stood at Rs 135 crore for December 2012 quarter. However, due to increase in the raw material cost by 41 per cent on YoY basis at Rs 105.40 for December 2012 quarter,the operating margin has remained almost flat on a YoY basis at 14.98 per cent for the December 2012 quarter as against 14.69 per cent for December 2011 quarter.

Noticeable factor is, due to signuficant higher interest by 55 per cent on YoY basis which stood at Rs 41 crore during the December 2012 quarter, net profit of the company improved by 25 per cent on YoY basis at Rs 54.38 crore for December 2012 quarter. Increase in net profit is also due to increase in other income that jumped by almost 26 per cent on Y-O-Y basis at Rs 15.46 crore for December 2012.

In conclusion, we believe that the company has posted decent results for the December 2012 quarter.For the next coming quarters we expect, that their would be a slight pressure on the margins due to higher raw materials cost .

All India cement price fell by Rs16 per bag to Rs 295 during December 2012 quarter, on the back of abnormally high prices in monsoon season for the September 2012 quarter. Prices in the northern region fell by Rs 15 per bag with an average price level of Rs 270 for the December 2012 quarter. Southern region has attracted the lowest fall of Rs 5 per bag at Rs 310 on the back of the continued industry discipline.

At its CMP of Rs 316.70, the company is trading at a PE multiple of 9x on an annualised EPS of Rs 35.30 at this valuation the stock is looking expensive. Therefore we recommend that investors should avoid the stock from a short-term perspective.